[South Africa] Growing market participation for new JSE agri product
The Johannesburg Stock Exchange recently launched a Soya Bean Crush futures contract which provides simultaneous exposure to soya beans as well as its processed by-products.
Chris Sturgess, JSE Director: Commodity Derivatives, says the JSE added the new contract to its agricultural market offering earlier this year, following interest from both soya bean processors and commodity traders. He says, “Our clients wanted to be able to trade the entire soya bean crush complex in a single product and so we created an index. The product is showing encouraging levels of market interest, with trades starting to gain momentum and R800 000 in value already traded in April.”
Soya beans are processed into two by-products, soya bean meal and soya bean oil, through a process known as ‘crushing’. The difference between the combined value of these products and the value of the soya beans is called the crush spread and is a measurement of the profit margin for soya bean processors.
The Soya Bean Crush futures complex consists of JSE Soya Bean futures contracts, CME Soybean Meal futures contracts and CME Soybean Oil futures contracts. Sturgess clarifies, “The crush value is traded based on expectations of the future price movement of soya beans compared to the other components of the contract. It allows soya bean processors to hedge against price fluctuations in the value of the crush index to improve sustainability of their busines
Craig Robinson, MD of Russell Stone International (RSI), which has recently executed the transactions, says the new contract has made hedging much easier. “Before the introduction of this contract you had to trade in South African and American beans and oil, and Argentinean meal in order to hedge meal, oil or the crush spread. This became very expensive. The JSE’s Soya Bean Crush Contract now gives you the ability to hedge your crush by trading in one contract, which makes hedging much easier. It also makes the process more cost-effective for both sides of the market, both buying and selling, by removing a lot of red tape. It also removes the necessity for actual delivery.”
“Soya beans, or soybeans as they are known in the United States, are one of the most important food crops globally today, with applications for both human and livestock consumption. The JSE is proud to roll out this specialised futures contract in the commodities sector in response to demand from our clients,” concludes Sturgess.